Digital transformation remains headache for many banks

One would think that by now the theme of “digital transformation” would be old news within banking, but a number of industry observers say much more work remains.

Unisys Corp., for example, says in a recent report that “many retail banks are struggling to keep pace with digital transformation, in particular as it relates to enabling customers to bank conveniently across whatever channel they use.”

“Most banks are actively seeking ways to re-invent themselves to better compete in today’s digital environment,” says Eric Crabtree, global head of Unisys Financial Services. “These organizations understand the need to go beyond traditional banking services; however, many are struggling to modernize in the face of archaic processes or legacy systems.”

Likewise, Greenwich Associates says in its own recent report that “commercial banks’ inability to keep pace with the digital capabilities of consumer platforms like Amazon, Uber, and other slick retail banking websites is frustrating U.S. executives, who continue to struggle with cumbersome and often manual documentation and compliance requirements.”

J.D. Power recently produced similar sentiments, but with a twist—just to make bank leaders’ headaches worse. It found that customers who bank exclusively through digital channels, as well as customers who bank exclusively through in-person branches, are the least-satisfied customer segments. The most satisfied customer segment is the one where the customer uses both digital and in-person channels.

“There is no doubt that digital banking channels give banks an enormous opportunity to reduce costs, but the risk is that those cost savings come with lower levels of customer engagement,” says Paul McAdam, senior director of the banking practice at J.D. Power. “Right now, retail banks need to address the growing digital divide that is emerging within customer segments. Successfully navigating that transition will require banks to provide better, more personalized advice that is consistent across both digital and branch interactions and to ensure that customer needs are met, regardless of channel.”

Bankers: “We get it”

As mentioned, banking leaders are well aware of all this—as evidenced by other surveys and studies. Just a couple of examples:

• Accenture says in a recent report that 79% of operations leaders at North American banks believe that their bank’s existence will be threatened if they don’t update their technology to innovate faster and more efficiently.

“There’s a wealth of unlocked value to be extracted from banks’ operational systems, but releasing and optimizing that value depends on the bank’s ability to use digital technologies,” says Alan McIntyre, senior managing director at Accenture and head of its banking practice. “The challenge lies in the banks’ legacy systems, which can impede a bank’s ability to improve operations and prepare for the future.”

• Grant Thornton LLP says in a report that 69% of the chief financial officers and senior financial executives it polled plan to increase their investment in technologies that speed business change.

“While investment strategies for digital transformation have traditionally been influenced by an organization’s desire to improve operational performance and reduce costs, respondents have shown that future investment strategies will shift to more strategic opportunities—chief among these being improving the customer experience,” says Srikant Sastry, national managing principal of Advisory Services at Grant Thornton.

Transformation high and low

Interestingly, a pair of unrelated reports unveil concerns about digital transformation from both the highest and lowest levels of organizational hierarchy.

A survey by Corporate Board Member and Spencer Stuart of 200 directors at publicly traded U.S. companies finds that they are “overwhelmingly concerned with being ill-equipped to keep up with the acceleration of technology and disruption.”

“With an eye to the disruptive forces facing their businesses, boards are adding directors with fresh perspectives and knowledge in emerging areas of importance, including technology, digital, and marketing expertise,” says Julie Hembrock Daum, who leads the North American Board Practice at Spencer Stuart.

Contrast that with a survey by Ernst & Young (EY). It finds that only 54% of entry-level people say that new ideas are celebrated internally, compared with 91% of senior executives. Of note, this disparity was most prevalent by organizational level, as opposed to age or generational breakdown.

“In this transformative and disruptive period, enabled by technology-led data analytics, organizations need to nourish and celebrate potential game-changing ideas while protecting them from being stifled by bureaucracy or silenced through a culture that may have an innovation disconnect,” says Michael Inserra, EY Americas deputy managing partner.

Inserra said that companies must be more proactive in engaging all employees in innovation discussions. Beyond this, he says, “organizations need systems where new concepts can be analyzed and tested—and ultimately implemented—so that today’s ideas can become tomorrow’s competitive advantage in the market.”

“This includes an acknowledgment that failure is a significant ingredient in the process,” Inserra concludes.

Not why, but how

Which starts to get to the point—how do you do all this? Fortunately, there is no dearth of advice available.

• Hug the omnichannel. Jouk Pleiter, CEO and cofounder of Backbase, points out in an IBM blog the need to really embrace omnichannel engagement.

“Each channel should offer the best experience possible,” Pleiter says. “It’s not about looking good with clever digital add-ons, it’s about being relevant and truly helpful.”

He adds: “Smart, omnichannel experiences go a long way towards convincing a customer their current bank is trying to take an active role in supporting them in their financial lives.”

• Focus on 4 key factors. Tushar Chitra and Avinash Swamy, researchers at Oracle, write in a blog that digital transformation can be achieved efficiently and effectively by focusing on four elements: customers, agility, costs, and collaboration.

In a nutshell, the authors say, regarding these four elements:

1.Customers—Derive information to offer each individual appropriate products and services across multiple channels.

2.Agility—Employ a robust technical architecture that can evolve in a scalable and flexible manner as circumstances change.

3.Costs—Invest in componentized solutions that can expand to multiple lines of businesses as needed in a cost-effective manner.

• Four more factors. Finally, Martin Wuite, chief information officer at Wolters Kluwer, offers this advice derived from a panel discussion about his company’s journey through digital transformation. That included these elements:

1.Baked in, not bolted on. “You must re-engineer how your business creates value for your customers in the digital age.”

2.Persistence pays off. “Staying the course in the midst of a significant digital overhaul can be challenging, but it is essential.”

3.Trust in your people. “The executive management indicates where the organization wants to go and gives the teams the space to decide how they want to get there.”

4.Find the right people. “For a successful digital transformation, you need different types of people, not only innovative young talent, not only experienced seniors, but a combination. People have to embrace diversity.”

John Ginovsky is a contributing editor of Banking Exchange and editor of the publication’s Tech Exchange e-newsletter. For more than two decades he’s written about the commercial banking industry, specializing in its technological side and how it relates to the actual business of banking. In addition to his weekly blogs—"Making Sense of It All"—he contributes fresh, original stories to each Tech Exchange issue based on personal interviews or exclusive contributed pieces. He previously was senior editor for Community Banker magazine (which merged into ABA Banking Journal) and for ABA Banking Journal and was managing editor and staff reporter for ABA’s Bankers News. Email him at [email protected]